How can you determine the Expected Annual Losses for an organization?

The determination of Expected Annual Losses for an organization involves calculating a figure that reflects the average anticipated losses over a year. This often requires analyzing past incidents to estimate what is likely to occur moving forward.

The correct approach is to take the average number of losses experienced in a specific timeframe and multiply it by the average cost associated with each of those losses. This method enables the organization to quantify the financial impact of incidents they have faced historically, making it a straightforward way to project future losses. By using both the frequency (average number of losses) and severity (average cost of a loss), organizations can arrive at a reliable estimate of their expected annual losses, providing valuable insights for risk management and financial planning.

The other options do not accurately capture the essence of determining expected losses. For instance, simply multiplying the average number of employees by the average salary doesn't relate to losses incurred, and calculating total revenue minus total expenses doesn’t provide relevant information specific to loss prediction. Lastly, dividing estimated losses by the number of years doesn't yield an accurate estimate of annual losses, as it doesn’t consider the actual frequency and cost of past losses that are essential for this calculation.